Comparing 1929 to Today

Posted on by Jason Leavitt

Here’s something for you bears to chew on…
Current SPX Rally from Mar 6, overlaid vs Dow 11/12/29 to 5/23/30

extended to 12/19/1930

extended to October 1932

0 thoughts on “Comparing 1929 to Today”

  1. You know, you can do this comparison with almost any correction and rise that we have had so far and garner the same outlook/conclusion. Nobody mentions that in 1929 the market was young and controlled by gamblers and thugs, as was the railroad, major shipping, and oil. It was a place where smart men could take the money from dumb ones. The problems were not really solved until we went to war, which we cannot afford to do today. The small wars that we fight today are costly, and a big war is not recoverable from. I do not think that will ‘hunt’ in today’s environment.
    The SEC had gone lax, but I would be willing to bet that after this is over, we will have a much more diligent group watching the fat cats. I applaud the recent efforts the government is making to shore up the flagrant violations that exist (read UBS and the errant tax payers). It is good to see guys like Madoff and Stanford prepare for stays in controlled environments where it will be harder to take hard earned money from the innocent and not so innocent folks. Our dollar is going to suffer in the coming years, and we probably deserve it and maybe we can learn from it. I do not see the same losses in the stock market coming to pass as we have observed from 1929 to 1933. I don’t believe that we can afford it, and there are people forming in place that will try to avoid it. I do believe that some of the greed that we are still witnessing today will need to be put in check, and maybe our growth will be limited until we realize that money is made through innovation and manufacturing rather than service and chasing the quick buck. The Collateral Debt Swaps and the house flipping that we have witnessed over the last years need to be fixed so that they cannot affect our banking and insurance/investment houses as they did this last year. The traders from the big houses need to be slowed down to allow the small investors to come back in the market place. We need to embrace the new technologies that are on the edge of the market, and get the research in place to profit from them once again in innovation and manufacturing. I believe that this will happen, and maybe we needed this to make us realize where our focus should be. That said, if we do not get market control in place and we start to see large downturns, it is obvious that this type of environment feeds on itself as we have witnessed in the Dow chart that is shown from ‘29 to ’33. So, let’s be careful out there amongst the heathen.

    1. Thanks for you thoughts Don.
      I’m not sure things have changed as much as you think. Wall St. is still a transfer of wealth from smart people to dumb ones. I’m not complaining, that’s just the way it is.
      The SEC was created during the 30’s, and I’m sure they’ve had times where they’ve done good work, but I hardly consider it a success to put Madoff in jail well after billions of dollars in damage had been done. Weren’t there red flags? What exactly is the SEC’s job if a $50 billion ponzi scheme goes unnoticed for over 10 years?
      Also it’s well known the SEC has granted “permission” to companies like Goldman Sachs to do things that are complete against the integrity of a marketplace. Wall St. and Washington are connected at the hip and both are as corrupt as ever.
      You say traders from the big houses need to be slowed down to allow small investors to come back to the market place? I think there should be one set of rules that everyone must follow, and then everyone should be able to fly as high as they can. To say the big traders need to let the small investors participate is like saying the guy at the end of the bench not only deserves playing time but should also get to take a few shots. IMO, as long as everyone follows the same rules, the best players have every right make whatever they can.
      We need to embrace new technologies. I totally agree. Instead of giving billions to the banks and insurance companies, imagine what would happen if they gave $250K to 10,000 entrepreneurs? Some of the new business would go belly up, but many would grow to become solid companies with a couple hundred employees and maybe one or two would be come the “next Google.” This seems like a much better ROI than giving money to AIG and C so they can turn around and pay fat bonuses to the morons who played a role created this mess.
      I’m not predicting the market will follow the 1930’s – not with the role the government is playing. One thing I do know…when this is all over, the US will have so much debt, she’ll be a ticking time bomb. We’ll never pay it off.
      Jason

  2. Don.. I think you initially made a few good points about the Depression era that seldom ever see the light of day in today’s comparisons, but I would have to agree with Jason. While the current markets are far more mature via chronological age and size, gamblers and thugs still rule the roost, albeit they are far more sophisticated and technological adept than in times passed. They have learned to populate government rather than have to fight government and fairness and level play are standards that are mostly illusions in today’s markets.
    The biggest and most sophisticated players simply do a better job of gaming the system 1) because they have undue influence over the government overseers, who turn a blind eye to flagrant violations of the rules by the biggest players and 2) because they are sharp and have the funds and technology in place to outpace virtually all other competitors.
    As long as the rules are applied unevenly, if at all, retail traders and investors (often referred to as the dumb money) are unable to sit at the feeding trough with the big boys (aka Smart Money) and eat their fill. Why? Because the game was designed by and for the big players to eat the small players for lunch and they do it with great regularity, day in and day out and by hook or by crook if necessary.
    Does anyone these days really believe that the wizards at Goldman and such places are all just a bunch of smart, high integrity people who are happy to stay within bounds and play under precisely the same access and rules as we do? Anyone who still believes in such fantasy is in serious need of taking the blue pill from Morpheus and getting their fat behind deep into that rabbit hole to begin to begin to get a sense of reality.
    I do not yet hold high hopes that the SEC, FINRA, et al will begin to impose the right level of regulation or enforcement on the market (especially at the levels and upon the firms where they really need to be applied) and strongly suspect that, as always, the current whirlwind of activity in those arenas is more about putting on a dog and pony show for the public to punish the smallfry. I have little doubt that Stanford’s and Madoff’s frauds, though not small by any means, are dwarfed by activities that haven’t even come to light as yet. If they involve the favored few.. we may never learn the true depths of what has been perpretrated in the markets under the guise of “bending the rules” (a much more publicly palatable term for “breaking the law” used by parties who consider themselves above the laws, rules and regulations by which the rest of us must abide.)
    The financial applecart is missing more than a wheel or two at present and manipulating economic data and hyping false green shoots is not a viable away to right the economy. The entire focus at the moment is on sustaining the bear market rally as a guidepost to point to and crow about as though it is the harbinger of economic recovery. The only job the government should have in the markets is to assure fair acess and a level playing field at all levels and for all participants. However, IMHO that is an activity that is strongly discouraged by their handlers (lobbyists and big financial institutions.)
    Also, expecting manufacturing to return to this country in any meaningful way, is simply not going to happen, until such time as our labor rates are far more on par with those of the rest of the World. That is a very unlikely possibility absent an extreme devaluation of the dollar that is well beyond the value declines experienced thus far.
    In addition, the re-inflation of assets through government spending is, IMHO, doomed to fail as eventually deflation and debt destruction must become the order of the day if we are ever to experience a real economic recovery. While there may be occasional bright spots along the way, we are likely in for a very long period of low to no growth and economic pain as the economy struggles to right size itself in line with a long term pull-back in consumer demand and slow but steady elimination of the excesses of the past.

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